Key Factors in January’s Jobs Report

The Labor Department’s January jobs report, due out Friday morning, will be closely monitored for further signs of slowing growth. A string of shaky economic data in recent weeks heightened concerns that a strong second half of 2013 would be followed by a disappointing first half of 2014. Economists surveyed by Dow Jones Newswires expect the report to show U.S. payrolls grew by 189,000. That would be a solid pickup from December’s preliminary reading of 74,000 and help ease worries about the labor market cooling. Economists expect the unemployment rate to tick down to 6.6% in January from 6.7% the prior month.

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Here’s what to watch for on Friday.

Weather Woes, Again? Some economists dismissed December’s disappointing payroll figure, the weakest monthly gain in nearly three years, as the result of poor weather. But the winter remained bitter for much of the country in January. If the overall gain “comes in under consensus, the market response will likely be muted as ‘it was weather’ claims attempt to explain away another month of disappointment,” Sterne Agee Chief Economist Lindsey Piegza wrote in a note to clients. “Of course, a print under 100,000 with widespread weakness across sectors will be much more difficult to shrug off.” One spot to look for any weather effect is construction, an industry hit harder than others by frigid temperatures. Construction payrolls fell by 16,000 in December, bucking the trend of modest monthly gains most of last year. Payroll firm Automatic Data Processing Inc. said private construction employment grew by 25,000 last month.

Double the Revisions, Double the Fun: Friday’s report will feature annual revisions to payroll figures that could reshape views of the labor market in 2013. Existing data shows the economy added an average of 182,000 jobs per month last year. The pace has held fairly consistent since 2011. The 2012 revisions released a year ago upgraded that year’s average gain by nearly 30,000 jobs per month. A similar recasting for 2013 would strengthen perceptions of an accelerating recovery. Any downward revision would indicate the labor market lost some steam last year, raising more worries about the path ahead.

Out of Benefits, Out of the Labor Force? Friday’s report would be the first to show any effect on the labor market from more than 1 million Americans losing extended federal unemployment benefits at the end of December. Those recipients were among the long-term unemployed, having already exhausted the 26 weeks of benefits most states provide. To receive payments, beneficiaries had to actively look for work, and as a result were counted as part of the labor force. Some economists think a good portion of those recipients will now give up looking for work, causing the unemployment rate to decline. “It would continue the trend of the unemployment rate falling for the wrong reasons,” said Chris Christopher, an economist at IHS Global Insight. In December, only 62.8% of people in the U.S. older than 16 were in the labor force. That matched the lowest participation rate since 1978, a time when women were entering the labor force in greater numbers.

Persistent Worries About Job Quality: The economy has added jobs consistently for more than four years, but much that gain has come in low-wage fields. Last year, three jobs were added in restaurants or bars for every one gained in a factory. Manufacturing jobs tend to pay higher wages than many service jobs. The trend may continue into 2014. Survey by the Institute for Supply Management released this week showed slower job growth in manufacturing last month, but accelerating employment gains in the service sector. Strong gains in low-wage jobs tends to keep overall incomes in check. Without income growth, consumer spending could slow.

Weak Job Growth Could Fight the Fed: The Federal Reserve voted last month to reduce the pace of its monthly bond purchases by another $10 billion despite December’s disappointing payroll report. It seems unlikely that January’s reading could knock the central bank off course. But policy makers would certainly feel more comfortable if a combination of strong revisions and a decent January pushed the six-month moving average of job creation back above 175,000. That was the pace when the Fed took its first step to curtail stimulus last year. Consecutive weak employment reports, combined with worries about emerging markets and the housing sector, could increase calls for the Fed to reevaluate its wind-down of bond-buying.

WSJ’s Jon Hilsenrath and Sudeep Reddy explain the circumstances surrounding Friday’s jobs report on the private sector and the Federal Reserve. After a sluggish January report, what impact will the numbers have on investors and policy in Washington? Photo: Associated Press.

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